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Tax Deductions*

Are you aware that, when you fill out your tax return, you're able to choose the tax deduction method that will save you the most money? Find out about the two methods and when each one is beneficial.

As if taxes weren't confusing enough, just when you think you've got the hang of it, along comes a choice on how to complete your return. When filing your tax return, the Internal Revenue Service (IRS) gives you a choice on how to determine your deductions. You should choose the method that gives you the highest total deduction amount in order to lower your taxable income, as this will lower the amount of tax you have to pay.

Standard Deductions

The easiest deduction method is to take the standard deduction for your filing status. You deduct a set amount from your adjusted gross income (AGI) in order to determine your taxable income. This method saves you time and the trouble of having to maintain records on your deductions. If your tax situation is uncomplicated by such things as owning a home or having extensive medical bills, this may be the best option for you. See IRS Publication 501 for more information about standard and itemized deductions.

Itemized Deductions

This method of determining your deduction amount requires that you file the 1040 tax form and list individual deductions on Schedule A. A key ingredient to itemizing your deductions is excellent record keeping throughout the year, as you must be able to support your deductions with receipts. See IRS Tax Topic 500: Itemized Deductions. Examples of allowable itemized deductions include:

  • Mortgage interest

     

  • Medical expenses, if they're greater than 7.5% of your AGI

  • State and local income taxes

  • State and local sales taxes

  • Personal property taxes

  • Gifts to charity

  • Casualty and theft losses

  • Miscellaneous expenses (total must be greater than 2% of your AGI). For example:

    • Employment-related educational expenses

    • Fees paid to a professional tax preparer

    • Dues for membership in professional organizations

    • Job hunting expenses, such as copying and mailing resumes

    • Mileage expenses associated with medical treatment, charitable services, and moving

    • Unreimbursed employee expenses, such as travel and union dues

While taking a standardized deduction may be best for you this year, don't assume it will also be that way next year. You may choose to itemize your deductions if this gives you the best savings. Be sure to review your options each year to select the one that's best for you. For more information about taxes, read the related articles in our Knowledge Center Library.

Take control of your finances with our debt help tools. Use our calculators and budget planner to help you manage your money.

*This is not intended to be, and is not tax advice. It is always wise to check with a tax professional if you have any questions before filing your taxes. 
 

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